Hello. I am new to this forum. It is intuitive what happens to CPI-type goods and services during hyperinflation. But what about property? Is there anyone out there who can suggest what happens to real estate prices when hyperinflation takes hold in an economic system? Does the real estate market simply seize up and cease to exist? Thank you.
I am not sure what you mean by hyper-inflation, I will assume you mean a large increase in the supply of money and credit. The term hyper normally refers to the size of the increase and in this case that is doubling the amount of currency since 2000 so I guess we can call it Hyper-Inflation.
Real estate markets behave like other markets that face long amounts of time where credit is easy to purchase. That is prices escalate as suppliers of credit (Ultimately the Federal Reserve) make it easy for borrowers to purchase increasingly expensive real estate. As these loans increase in payments, borrowers become unable or unwilling to pay the higher prices. The “Sub-Prime” portion of the credit market has the most problem as they are the borrowers who have the most risk, least likely to pay. The problem is that these borrowers are dumping their homes as lower prices or experiencing forclosures. The other potiential borrowers now would upgrade as prices drop but are unable to sell their properties as lenders are increasingly stingy in lending to risky buyers (Sub Prime Folks). This is now a recession in real estate.
It was completely manufactured by the easy credit coming from the Federal Reserve.